ASIC today announced measures to help ensure issuers of debt products such as debentures and notes provide investors and financial consumers with the information they need to make informed decisions about investing in these products. These products can be risky.
The measures include:
- changes to the naming of both listed and unlisted retail debt products to better reflect the nature of the product
- updated regulatory guidance for issuers of unlisted debt products, in particular Regulatory Guide 69 Debentures and notes: Improving disclosure for retail investors (RG 69), and
- updated investor information on our investor and financial consumer website, MoneySmart.
ASIC will now permit issuers of debt to name its product a secured note if there is a first ranked security over some assets, so long as conditions about describing the security are met. Issuers may only call a product a debenture if the security is over tangible property.
All issuers must make clear in their advertising that the products are not a bank deposit and should not suggest that they compare favourably to a bank deposit.
ASIC Deputy Chairman Belinda Gibson said: ‘The ‘secured note’ description does not mean these investments are low risk or safe. These investments are not in any way equivalent to a bank deposit in terms of risk, payment of interest or repayment of principal. These products may pay a higher interest rate. This probably reflects the fact they are more risky.
‘Read the material provided by debt issuers very carefully before you invest. As with any investment, if you don’t understand what you are investing in, then do not invest.
‘Investors continually ‘roll over’ these investments. Investors should review the most recent disclosure when invited to roll over their investment. That could be contained in a more recent prospectus or a continuous disclosure notice. It should be on the issuer’s website. Ask the issuer for the most recent information. Something may have changed since you last invested, such as the issuer’s ability to repay your investment.
‘Before you reinvest, ask if there is updated information. Read it carefully as this is where you are likely to find out any bad news.’
ASIC has added new information for consumers and retail investors on its MoneySmart website in a new section, Investments paying interest. Information is also available on products such as term deposits which are Government-guaranteed and prudentially regulated by the Australian Prudential Regulation Authority (APRA).
Background
ASIC urges any investors considering retail debt products to look beyond an advertisement with a ‘secured notes’ description and carefully consider the prospectus. Investors should have a clear understanding of the issuer’s business model, the nature of the security and any risks of the security provided being insufficient to repay them at the end of their investment. This is especially important as the product is not a bank deposit. Investors risk losing some or all of their money in such products.
ASIC introduced the ‘secured note’ description by providing relief to the law under ASIC Class Order [CO 12/1482] When debentures can be called secured note. The conditional relief follows the issue in March 2011 of ASIC Consultation Paper 151 Debt securities: Modifying the naming provisions and advertising requirements (CP 151) (refer: 11-61AD).
Following consideration of the initial responses in the paper, in August 2011 ASIC conducted further consultation with the initial respondents and other interested parties on further proposals relating to how debentures should be described in a document relating to an offer (refer: 11-172AD).
Responses to the submissions received are contained in Report 276 Modifying the naming provisions and advertising requirements (REP 276).
The class order relief deals with concerns from industry participants about ASIC’s decision in June 2010 to discontinue a long standing no-action position in relation to certain non-compliance with the debenture naming restrictions (refer: Report 38: High-yield debentures – ASIC surveillance report (REP 38)). The no-action position allowed issuers to treat property without an actual physical existence (e.g. loan receivables) as ‘tangible property’ for the purposes of s283BH. This no-action position will be discontinued for all documents relating to an offer of notes made under a disclosure document with a lodgement date after 1 April 2012.
CP 151 also proposed to modify the advertising requirements for these products and interests in mortgage schemes. Regulatory Guide 156 Advertising of debentures and notes to retail investors (RG 156) has been updated, including reflecting the advertising requirements applying to secured notes. ASIC’s Regulatory Guide 45 Mortgage schemes—improving disclosure for retail investors (RG 45) will be updated shortly to reflect the slightly revised advertising requirements set out in the updated RG 156.
Download: